Many people view turning 50 with trepidation as if they were entering the Grim Reaper’s waiting room.
Barring something unforeseen, your 50’s will be a golden decade, especially when it comes to money. These should be your peak earning years. Many of the expenses of raising kids, including most/all of college, will be behind you. So, this is when you should put the savings peddle to the metal to make sure you cross the retirement finish line in a blur of color and roar of sound.
Here are eight ways to leverage the time and money available in your 50’s.
Play the age card. When you turn 50 you can start making catch-up contributions to your retirement accounts – an extra $6,000 per year in your 401k and an extra $1,000 in your IRA.
What bonus? Steer all bonuses and pay raises into your retirement accounts. You’re living just fine on your current salary and you don’t really need a 90” TV. No one does.
Keep it up. Don’t coast or let your energy slump. Continue to envision your long-term future, just as you did when you were 26. This will help you maintain your savings discipline and help prevent you from being perceived as “old and tired” in the workplace. Believe me, you do not want to get laid off at 57.
Get the damn kids outta college. Agree to pay for four years of school, and then make sure they graduate on time. You don’t want to get sucked into paying (or borrowing) for an extra year or two. The sooner they get that sheepskin and get a job, the better for your bottom line.
Don’t over-borrow for college. Yes, yes — we all want to give our children the best possible education. But you’re not doing the kids a favor if you weaken your financial future to pay for their schooling. Limit your borrowing to what you can pay back in 10 years or before you are retired, whichever is shorter.
Do. Not. Borrow. From. Your. 401k. Period. This is never a good idea and an especially bad one for 50-somethings. You risk losing significant growth from compound interest, could face penalties if you don’t pay back the loan on time, and may not be able to make additional contributions until it is paid back.
Become an income investor. For most of your savings timeline, you were wisely focused on growth stocks. But as you approach retirement, it’s time to start moving into income assets – stocks, bonds and other holdings that won’t show a ton of growth in share price but will reliably pay you dividends or interest. Before retirement, the income generated by these assets can be reinvested. Once you retire, they can become a monthly income stream.
Get some help. If your retirement has been a DIY project, consider talking with a financial professional. You may be pretty, pretty good at investing, but a set of trained, experienced eyes might offer some fresh perspectives and profitable tweaks. See if your 401k plan offers free professional advice. If not, find a fee-only Certified Financial Planner. CFP’s don’t receive commissions from investment marketers and are legally bound to put your interests first in every decision and transaction.
Put these tips to use and you’ll discover that your 50’s aren’t the beginning of the end, but rather the beginning of a wonderful new phase in your life.